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5 Technical Setups for a Market Selloff


First up this week is aluminum producer Alcoa (AA - Get Report), coincidentally the first company that reports earnings each quarter. Even though Alcoa reported substantially larger second-quarter profits last Monday, shares have fallen more than 7% in the days since. But investors shouldn't jump ship just yet.

That's thanks to a falling wedge in shares of this metal stock. While a falling wedge looks bearish at first glance, the key to this setup is the fact that it has converging trend lines -- convergence indicates that selling pressures are waning. Statistically, the wedge is a highly predictive pattern, correctly determining directional bias in shares nearly 90% of the time in studies.

For the Alcoa trade to take effect, we'll need to see shares definitively break above that upper blue trend line. It's crucial not to get in early on this trade. Because the pattern is downtrending, shares could conceivably fall much further before sending the "buy" signal. Once the breakout happens, this becomes a high-probability trade.

Alcoa was featured recently in " 5 Mining Stock Hit Paydirt" and " 5 Materials Stocks for a Growing Economy."
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